Canada's banks set up fund to finance small businesses

Thu Mar 9, 2017 4:30pm EST
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By Matt Scuffham and Alastair Sharp

TORONTO (Reuters) - Canada's major banks and insurers said on Thursday they planned to create a fund to invest up to C$1 billion ($740 million) in small but growing Canadian firms, part of measures to boost economic growth.

The fund has been set up to bridge a gap in lending to companies that have already begun trading but are looking for additional investment to increase their operations. It is one of a number of recommendations to stimulate Canada's economy made by advisers to Finance Minister Bill Morneau.

"These are high-performing firms and these firms are going to create high-quality jobs in Canada," said Mark Wiseman, the former chief executive of the CPPIB, Canada's biggest public pension fund, who sits on Morneau's Advisory Council.

"What the business growth fund will do is catalyze them," he added in an interview. "If they get through that phase of their development, they'll be able to continue to grow by accessing more traditional sources of financing."

The fund is expected to have an initial capital commitment of more than C$500 million. Initial participants will include the country's six major banks, as well as insurance companies, although a range of financial institutions will be able to invest in the fund when it is formed.

A similar entity has proved successful in Britain, having been set up in 2011 with 2.5 billion pounds of funding by the UK's five biggest banks. It has so far invested more than 1 billion pounds in over 160 companies and was the seventh-busiest private investor in the world in 2016, based on deals completed.

Victor Dodig, chief executive of Canadian Imperial Bank of Commerce (CM.TO: Quote), who was one of the earliest supporters of the initiative and played a prominent role in setting up the fund, said it could expand beyond C$1 billion.

"I'm pretty confident that the first initial tranche is necessary, and then from that we will find out how much more is needed," he said in an interview. "What we wanted to do is get things going. Part of this is getting traction."   Continued...

The moon rises behind the skyline and financial district in Toronto, November 25, 2015.    REUTERS/Mark Blinch